LSE-listed diamond miner Petra Diamonds has announced a fully underwritten rights issue to raise approximately US$178 million (R2.2 billion) to reduce its debt levels.

Petra Diamonds plans to raise US$178 million by way of a 5 for 8 Rights Issue. The Rights Issue is fully underwritten by the Joint Bookrunners pursuant to the terms of the Underwriting Agreement.

The Issue Price of 40.0 pence per Rights Issue Share represents a 47.4% discount to the Closing Price of 76.0 pence on 23 May 2018 and a 35.6% discount to the TERP of 62.15 pence per Existing Share calculated by reference to the Closing Price on 23 May 2018.

“This Rights Issue has been identified by the board as the best way of accelerating a reduction in leverage to a more sustainable level, thereby enabling management to focus on ongoing operational delivery and optimisation, as well as assisting in mitigating short-term issues relating to currency volatility and other ongoing business challenges," comments chairman Adonis Pouroulis.

“We greatly appreciate the support we have received already in relation to this transaction, with the Rights Issue being fully underwritten by a syndicate of banks and supported by our South African lender group," he continues.

 

In the event that the resolutions are not passed, the Rights Issue will not take place.

In such circumstances, Petra Diamonds is of the opinion that the working capital available to the Group may not be sufficient during the Working Capital Period.

Excessive debt

“Whilst Petra Diamonds has successfully delivered on the majority of milestones associated with our expansion programmes, cash flow generation over the last two years has been impaired by a combination of the operational delays in FY 2017, combined with a number of business challenges experienced in the first half of FY 2018," explains chief executive Johan Dippenaar.

"These factors, in conjunction with the impact of a much stronger Rand versus the US Dollar, have led to the company’s debt levels being higher than anticipated and have impacted its ability to deleverage in line with expectations.

“By improving the Group’s financial and operational flexibility, the board believes this Rights Issue is in the best interest of its shareholders, positioning Petra Diamonds to reap the benefits of this capital intensive phase by moving the focus to cost efficient production from the new undiluted mining blocks, with a reduced capital spend profile," comments Dippenaar.